9M 2015 passive income from non-REITs.

Some wonder if Mr. Market could go into a depression? I don't know but I do know that many stocks became much more attractively priced in the last three months.

Consistent with my strategy to diversify my portfolio to reduce reliance on S-REITs for income, I added to my long positions in the following as their stock prices declined more significantly recently:

1. Accordia Golf Trust

2. Ascendas Hospitality Trust

3. ST Engineering

4. Starhub

5. SembCorp Industries

In the last three months, I also initiated long positions in the following as investments for income:

5. VICOM
"A 15x PE ratio would give us a fair value of $5.36 or so per share."

6. Religare Health Trust
"Trust has demonstrated its ability to improve its revenue organically quite strongly which makes up for the expiration of the sponsor's waiver to their share of the distributable income."

7. King Wan
"King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018."

Finally, I accumulated the following stocks which have a bit of an income investing angle but the main reason is because I think they are worth much more and at lower prices, they became even more attractive:

8. Wilmar

9. OUE Limited

If you should be interested, you could search ASSI for more of my blog posts on these stocks and why I decided to add them to my portfolio when I did.

Of course, stocks could stay undervalued for a long time but regularly receiving some dividend in the meantime makes the waiting more palatable. I like to be paid while I wait.

If you suspect that I have dipped into my war chest in the last three months, you are right. 

Could we see another big decline in the stock market? We could and we should be ready. So, being cautious, I have not exhausted my war chest.

I have a couple of fixed deposits maturing next month in October and I will probably be keeping the money close at hand instead of putting it in another fixed deposit or two.

In Q3 2015, the following non-REITs paid dividends:

1. SATS

2. Old Chang Kee

3. APTT

4. SingTel

5. SCI

6. SMM

7. Wilmar

8. NeraTel

9. ST Engineering

10. QAF Ltd.

11. Starhub

12. HongLeong Finance

13. Croesus Retail Trust

For the first 9 months of 2015, total passive income received from non-REITs: S$ 57,747.59. 

This works out to be S$ 6,416.40 per month.

Have a shopping list and be ready to pounce if Mr. Market becomes depressed.

Related post:

6M 2015 passive income from non-REITs.

AK might nibble at King Wan Corp. Ltd.

The past few years were characterised by very low interest rates as money supply was ramped up by the U.S. Federal Reserves. Many businesses and individuals probably benefited from this. However, interest rates cannot stay so low for too long.

In preparation for an environment of higher interest rates, I have mentioned a few times before that I am on the lookout for businesses which are net cash or have very low gearing. I would also like to have them pay regular and meaningful dividends. I said the same thing too during an interview I gave recently.

To this end, together with a handful of companies, I have also been keeping an eye on King Wan which is a company introduced to me by Solace, a guest blogger here in ASSI, some time ago. Solace also wrote a very good piece on King Wan then and I have appended the link at the end of this blog.

Of course, it is not enough that a business is in a net cash position or has low gearing. That only represents balance sheet strength. We should also want the company to have earnings visibility.

King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018. Just like how I like Hock Lian Seng's order book which provides earnings visibility until 2020, I like the health of King Wan's order book too.

As I invest primarily for income, I am also attracted to King Wan because they pay dividends regularly. A DPS of about 1.5c per year seems undemanding given their more normalised EPS of about 2c.

What do I mean by normalised EPS?

Well, I know that King Wan made quite a bit of money from savvy investments which gave them extraordinary gains at times but it is the health of their core businesses' which is more important in helping to determine sustainability of their dividend payouts.

So, at a price of 30c a share, for example, a 1.5c DPS, representing a pay out ratio of 75%, gives us a dividend yield of 5%. Doesn't sound too bad, right? Then, why did I not buy some of its stock?

Well, as I shared with Solace in a chat before, I have a certain amount of money to be allocated and, after some thought, I decided to put King Wan in the same category as Hock Lian Seng which comparatively gave a higher dividend yield with a lower payout ratio of about 40%.

Am I going to invest in King Wan now, I asked myself, as Hock Lian Seng's stock price has shot through the roof? Why not a nibble?

OK, if Mr. Market should give me a better offer, I might.

Related post:
Tea with Solace: King Wan Corp. Ltd.

25% discount offered by Hock Lian Seng.

I have been receiving quite a number of emails recently offering discounts on asking prices for condominiums in Singapore. It would seem that local developers are feeling the heat and the decline in asking prices could persist for some time to come.

I received another email today and it is for Skywoods condominium which is being jointly developed by Hock Lian Seng, King Wan and TA Corp.

I said in an earlier blog post that the break even price for Skywoods is estimated to be $1,100 psf. So, if you would like to buy a unit in the project, getting a price that is very close to $1,100 psf would be like getting a home built for you at cost with almost no profit for the developer. This is hardly fair to the developer but this is life.

Source: www.stproperty.sg

 

For those who have been waiting to buy a condominium in Singapore, it is probably time to start looking around as it is now a buyers' market and it looks to be increasingly more so.

Related posts:
1. Hock Lian Seng: Won $221.8 million contract.
2. Buying an apartment: Some considerations.
3. Buying a private property as an owner occupier?
4. Buying a property: Affordability and value for money.

Tea with Solace: King Wan Corp. Ltd.

Business Structure

 

King Wan Corporation Limited is a Singapore-based integrated building services Company with principal activities in the provision of mechanical and electrical (M&E) engineering services for the building and construction industry. It also operates in three other business segments, namely Property, Manufacturing and Services.

It operates principally in four business segments:

 

Engineering segment: Provides multi-disciplined M&E engineering services such as the design and installation of electricity distribution systems, fire protection, alarm systems,

communications and security systems, and air-conditioning and mechanical ventilation systems for the building and construction industry;

 

Property segment: Engages in the development, marketing and sale of residential and commercial properties in Singapore, China and Thailand;

 

Services segment: Provides rental and other services for mobile chemical lavatories and other facilities for construction worksites as well as public and nation-wide public events.

 

Vessel owning and chartering segment: Buys suitable vessels for chartering to third

parties.

(Source: King Wan's website.)

 

From M&E Engineering to developing property, providing mobile toilets and even vessel owning, this seems like a Rojak company to me at first glance. However, bearing in mind that a well mixed Rojak can be delicious, I decided to dig further.

 

King Wan's true strength lies in its engineering segments. It has more than 30 years of experience in the building and construction industry and has established a sound and stable foundation. 

 

Within the mechanical & electrical (M&E) space, King Wan is a company that is involved in the fields of electrical, plumbing, air-conditioning and fire protection. Its economies of scale give it a contract-winning cost advantage.

 

Recently, King Wan Corporation won S$26 m worth of new M&E contracts. Total M&E contracts' value stands at S$168.9 million, lasting to 2016. This will keep them busy.  This core segment contributes an estimated S$5 m to S$7 m, which should be sufficient to meet the 1.5 cents of dividends.

 

 

On the property front, King Wan together with TA Corporation, Hock Lian Seng and Far East Distillers Pte Ltd ventured into condo development. They have recently unveiled “The Skywoods” at Dairy Farm Road. Some people believe that Kingwan is late to the party but I believe it is better late than never. I am paying close attention to how this property segment can contribute to their overall performance.

 

In 2013, the company ventured into vessel ownership and chartering business through Gold Hyacinth. The first vessel purchased called “Hai Jin” is a bulk carrier. The vessel has since been chartered to a 3^rd party. This operation should contribute to the group’s results in the new financial year, which I am keeping an eye on to see how it can value add.

 

The rental of mobile toilets contributes about 4% of group's total revenue. It provides a diversified and steady income stream.

 

Perhaps, the biggest reason why the stock jumped this year was the announcement of Share Sale Agreements signed with Kaset Thai Industry Sugar (KTIS). KingWan has agreed to sell to KTIS its entire shareholding in Environment Pulp and Paper Company (EPPCO) and Ekarat Pattana Company Limited (EPC), comprising 5 percent in cash and the rest in listed KTIS shares. Barring unforeseen circumstances, KTIS shares are expected to list on the Stock Exchange of Thailand.

 

This event can unlock shareholder value. In the latest announcement, Kaset Thai Industry Sugar (KTIS) has applied for IPO. The Securities and Exchange Commission (SEC) in Thailand has allowed KTIS to begin marketing its shares. This adds another level of certainty to the anticipated IPO as well as the declaration of the 1.5 c special dividend.

 

 Financials Fundamental

 

Market Cap ~ $103M @ $0.295 per share

EPS ~ $2.35 cents

P/B ~ 1.21

NAV ~ $0.2431

PER ~ 12.55x

Dividend Yield ~ 5% (Based on core 1.5c dividend)

Dividend Distribution ~ Aug/Nov Semi-Annual Distribution

Current Ratio: 1.46

Quick Ratio: 1.43

Gross Debt to Total Equity Ratio: 18.3%

 

Conclusions

 

I like the strong core M&E business. The strong order book can sustain a few years of core 1.5 cents dividends.  I like to be rewarded with dividends while I monitor the company growth. Semi-Annual distribution has been consistent even during the crisis year which is good.

 

With the impending listings of the group’s two Thai associates, EPPCO and EPC, the financial position should be boosted. I will be looking closely whether King Wan can explore new investments that can add value to share holders.

 

Some risks are also on my mind. The risk in property development has increased with more cooling measure introduced. We have yet to see result from Vessel Ownership and Chartering business; profits may get dragged if it does not perform well. Revenue will decrease with a lack of contribution from its Thai associates after sale.

 

I would usually write down the reasons for investing in a company. If the company takes a turn for the worse, I take out the piece of paper and analyse whether the reasons for buying the stock still makes sense.

 

For King Wan, if the competitive edge of the engineering segments gets eroded by competition and if the listing of Kaset Thai Industry Sugar (KTIS) gets into trouble, it will be enough for me to admit I made a mistake. This will be the right reasons for me to sell the stock.

 

Disclaimer: The article is my personal opinion and is not a recommendation to buy or sell. Any increase in popularity of the stock that leads to an increase in share price will benefit Solace in the long run, Haha.

 

Read other guest blogs by Solace: here.